Tales of the South Pacific: President Obama, the Trans-Pacific Partnership and US leadership in Asia

Claude Barfield, Philip Levy 28 January 2010

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After prolonged ambivalence, President Obama finally found a trade agreement he could embrace – the Trans-Pacific Partnership. But what is the object of the President’s new-found passion? Why did the South Pacific catch his fancy when pending agreements in Latin America and Northeast Asia could not? And will this amount to anything more than the administration’s rather empty promises to wrap up the Doha Round of WTO global trade talks?

The importance of this new trade agreement: US role in Asia

In fact, the Trans-Pacific Partnership is potentially a significant addition to US trade policy. It could present a model for trade liberalisation and a means to address long-standing US interests in Asia. Two decades ago, then-Secretary of State James Baker warned it would be a strategic mistake for the US to allow “a line to be drawn down the middle of the Pacific” with the US on one side and the nations of Asia on the other. This vision of a trans-Pacific regionalism was embodied in the Asia-Pacific Economic Cooperation (APEC).

In recent years, however, a narrower, more exclusive vision of regionalism, limited to Asian nations in the form of the so-called ASEAN+3 and the East Asian Summit, has emerged to challenge trans-Pacific regionalism.

Asian leaders and friends of the US, such as former Singapore Prime Minister Lee Kwan Yew, have urgently warned that unless the US becomes more engaged in Asia, through reassuming leadership for APEC and other trans-Pacific institutions, China will inexorably emerge as the regional hegemon to the detriment of US – and the rest of Asia’s – national interests. The Trans-Pacific Partnership could shape the debate about the future US role in Asia and offer prospects for a new “bottom-up” approach to striking global trade deals.

What is the Trans-Pacific Partnership?

The Trans-Pacific Strategic Economic Partnership, as it is formally known, came into being in the in the summer of 2005. The agreement was signed by New Zealand, Chile, Singapore and Brunei. It entered into force in 2006.

The first distinguishing feature of the partnership is that it is a relatively comprehensive agreement. It includes liberalisation on all tariff lines for Chile, Singapore, and New Zealand, and 99% for Brunei. It has an extensive services chapter, as well as chapters on safety standards, technical barriers to trade, competition policy, intellectual property rights, and government procurement. There is a separate Memo of Understanding on labour and the environment (see Elms 2009). This puts the partnership in the class of serious, high-standard agreements favoured by major developed nations like the US and the EU.

The second distinguishing feature is the explicit intent to welcome new members. The Trans-Pacific Partnership was meant to serve as a model agreement that new members might join. Those new entrants may do so “on terms to be agreed among the parties, by any APEC economy or other state” (New Zealand Ministry of Foreign Affairs and Trade).

The Trans-Pacific Partnership in the Asian context

Asia is awash with alliances and acronyms. There is APEC, the Association of Southeast Asian Nations (ASEAN), ASEAN+3 (APT), and the East Asian Summit (EAS). Each configuration differs from the other in an important way, usually by which country is excluded. Thus, the struggle over which forum is to be empowered – sometimes referred to as “East Asian architecture” – is really a struggle over political influence in the region. Since there is little eagerness for joint security action among the major players in Asia, the shaping of commercial ties emerges as the key battleground.

APEC began in 1989 and has the most inclusive membership. It was not until 1993, when President Clinton upgraded the process by inviting APEC heads of state to a meeting in Seattle, that the vision of a trans-Pacific architecture took shape. Subsequently, in 1994, APEC leaders adopted the so-called Bogor Declaration that committed APEC members to free trade in the Asia-Pacific for developed countries by 2010 and developing countries by 2020.

From the outset, APEC was unique among multilateral trade agreements. It never proceeded from a traditional reciprocity-based negotiating framework. Rather, it has worked on the basis of “concerted unilateralism”, whereby each member is expected to move toward free trade at its own pace and along its own path.

After 2000, the ASEAN+3 increasingly moved to centre stage as the chief vehicle for East Asian integration. Originally behind the scenes, but in recent years more openly, China has pushed to increase the stature and activities of the ASEAN+3. For China, there are three virtues associated with the organisation and the process relative to APEC:

  • the US is not a member;
  • Taiwan is not a member; and
  • the overriding vision sees intra-Asian regionalism as the wave of the future.

Since 2001, the greatest activity in East Asia on the trade front has been the burst of bilateral free trade agreements that have been negotiated among East Asian countries and between those countries and nations outside of the region. As of June 2009, according to the Asia Development Bank, 109 such agreements that include one or more Asian countries have been signed or already implemented. In addition, another 107 are in process, either proposed or under negotiation (Asian Development Bank 2009).

The wave of free trade agreements has two implications for the future of Asian regionalism and for US options regarding the regional economic architecture.

  • First, virtually every Asian government has gone through the learning process of negotiating reciprocity-based agreements. For example, Japan and Thailand have proposed, negotiated, or concluded 20 and 24 free trade agreements respectively.
  • Second, there has been an inevitable erosion of the strict “non-interference” and “concerted unilateralism” dogma that historically has been characteristic of many Asian nations when it came to trade negotiations.

US trade policy options in East Asia

Where, then, does this leave the US in Asian trade policy? In a recent paper, we outline a number of options (Barfield and Levy 2009a).

  • Bilateral free trade agreements: Continue along the current path

The US could continue on the bilateral path it started down after the disappointment with APEC as a vehicle for East Asian trade liberalisation – a path that resulted in agreements with Singapore and Australia. In 2007, the US and South Korea successfully concluded negotiations for a comprehensive, WTO-plus free trade agreement. If and when the US Congress ratifies it, trade economist Richard Baldwin predicts that his long-discussed “domino effect” will finally take hold (Baldwin 1993). Recently, a wild card has been introduced into the bilateral equation with the successful conclusion of the EU-Korea free trade agreements. It remains to be seen if this agreement, which will likely come into force in early 2010, will produce a “domino effect” (Stangarone 2009).

  • Free Trade Area of the Asia Pacific

At the other end of the policy option spectrum, the US could get behind calls for a Free Trade Area of the Asia Pacific and push for an APEC-wide agreement within some determined time frame – perhaps ten years. One possible way forward, already a tradition in APEC, would be to set different timetables for the more developed countries versus the developing country members of APEC. Given the still raw memories of 1997-98, when the US overplayed its hand and caused a backlash against reciprocal sectoral liberalisation in APEC, US trade negotiators would now have to tread carefully if they hope to revive APEC as a regional vehicle for trade liberalisation.

  • Coalitions of the willing

There are a variety of paths the US could pursue in building toward a trans-Pacific agreement. Using APEC as the institutional forum, the US could attempt to negotiate with those APEC members that are ready to move beyond bilateral agreements towards a sub-regional agreement. In order to avoid anger and resentment over future discrimination, the APEC without the agreements would need to provide a clear docking arrangement so that, when ready, other APEC nations could more easily join the agreement.

  • Trans-Pacific Partnership

And thus we return to the promise of the Trans-Pacific Partnership. Its current configuration includes two US trade agreement partners: Chile and Singapore. Two more US partners have expressed an interest in joining talks: Australia and Peru. Japan and Vietnam have also indicated they could attend. An agreement with the US, Japan, Australia, New Zealand, and Chile at its core would have the economic heft to set a new standard for Asian integration. If it were open to new members, it could serve as the foundation for a Pacific-spanning free trade area.

The Trans-Pacific Partnership in the US trade context

While the Trans-Pacific Partnership is important in the context of Asian regional manoeuvring, it also emerges as a potentially important component of debates about US trade policy.

Trade has been a politically difficult issue for the Obama administration, one it has generally sought to avoid (Barfield and Levy 2009b). This posed a problem for the President as he headed off to November’s Asia meetings. In this context, it is easy to see how the Trans-Pacific Partnership could appeal. It was too little-known to be very contentious and it had the general air of a visionary and creative new approach to trade, despite its origins in the Bush administration. The President seemed to avoid some difficult technical obstacles by promising to “engage” in discussions, rather than commit to reach an agreement. In recent weeks, the administration has indicated that it will handle the absence of trade negotiating authority by pretending that the authority still exists. Specifically, the administration notified Congress of its Trans-Pacific Partnership intent under the procedures that would have applied had the 2002 Trade Promotion Authority not expired (USTR 2009).

Conclusion

On its own, the Trans-Pacific Partnership represents a very modest advance in global trade liberalisation. Its importance lies in its potential. If successfully negotiated, it could potentially trigger a wholesale reconfiguration of Asian commercial alliances in a way that would meet important and long-held US goals. It could potentially offer a way to overcome the global impasse between nations seeking deeper integration and those resisting such extensive commitments. And it could potentially offer a model of open regionalism that would address concerns about the world breaking up into distinct trading blocs.

Beyond the economic consequences, there are major strategic imperatives for the Obama administration to move with speed. As Lee Kwan Yew has argued, the pace of Asian regionalism is quickening. Within the last year, Australian Prime Minister Kevin Rudd has put forward and vigorously pushed for a new proposal on an inclusive Asia Pacific Community that would include the US and India. Conversely, the quirky, erratic new Japanese Prime Minister, Yukio Hatoyama, has espoused a narrower vision of an East Asian Community, implicitly excluding the US (Thayer 2009, Goerge Mulgan 2009, and Rathus 2009).

The future of Asian regionalism is in extreme flux – presenting President Obama with both opportunities and dangers. It is time to move beyond vague promises of “engagement” to results. A serious approach to Trans-Pacific Partnership negotiations would present an opportunity to do so.

References

Asian Development Bank (2009), “FTA Status by Country, 2009”, table 6, Asian Regional Integration Center, June.

Baldwin, Richard (1993), “A Domino Theory of Regionalism”, NBER Working Paper 4465, September.

Barfield, Claude and Philip I Levy (2009a), “Tales of the South Pacific”, AEI International Economic Outlook, December.

Barfield, Claude and Philip I. Levy (2009b), “In Search of an Obama Trade Policy”, AEI International Economic Outlook, August.

Elms, Deborah (2009), “U.S. Trade Policy in Asia: Going for the Trans-Pacific Partnership?”, East Asia Forum, 26 November.

George Mulgan, Aurelia (2009), “Is There a ‘Japanese’ Concept of an East Asian Community?”, East Asia Forum, 6 November.

New Zealand Ministry of Foreign Affairs and Trade, “Trans-Pacific Strategic Economic Partnership Agreement.”

Rathus, Joel (2009), “Squaring the Japanese and Australia Proposals for an East Asian and Asia Pacific Community: Is America In or Out?” East Asia Forum, 4 November.

Stangarone, Troy (2009), “Korea-EU FTA Represents a Challenge for the United States”, Korea Insight, Korea Economic Institute, Washington, November.

Thayer, Carlyle A (2009), “Kevin Rudd’s Asia-Pacific Community Initiative: Suggestions and Insights for the Future Process of East Asian Regional Cooperation”, International Conference on East Asia and South Pacific in Regional Cooperation, Shanghai, 9-10 September.

USTR (2009), “U.S. Engagement with the Trans-Pacific Partnership: Action to Date”, fact sheet, December.

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Topics:  International trade

Tags:  US, trade policy, Asia